Overview of passive income
- Working in most jobs, you are directly trading time for money. As soon as you stop working, you stop earning money. This is called active income.
- With passive income, you need a huge initial investment of time/effort/money to set up a system that can generate recurring income. Once it is working, little effort is required to sustain it.
If you hold a regular job like many people, then you have a boss that you work under and the amount you earn is directly linked to how many hours you spend working.
More time spent working = More money
This is known as active income. You are trading your time for money. As soon as you stop working (eg. you quit your job), you no longer earn any money.
There is an alternative income model where you receive recurring income each month with little effort needed to generate the income. Sounds good right? This is passive income. An example of passive income would be renting out property that you own – you need to make sure that you have a paying tenant, but once that is set up, you could be spending most of your time working on other things and still be collecting rent payments each month.
If passive income is so great then why isn’t everyone doing it?
In order to reach the stage where you are able to generate this recurring income, you initially have to invest an enormous amount of time, effort, money or a combination of these three things. Going back to the example of renting property, you would need to buy the property first – this represents a huge amount of money that most people cannot afford.
The internet is a wonderful tool that allows anyone to reach a global audience of potential customers. Technology has now advanced to the point where anyone can set up their own website and create their own products to sell, without needing to spend large sums of money. Much of the selling process can be automated, providing an opportunity for anyone with an internet connection to generate passive income. However:
- Most people would rather follow the crowd and do what everyone else is doing. Receiving a salary working for someone else is much safer than starting up your own online business. A salaried job provides steady income and is low risk but the owner of the company you work for gains the most from your efforts, not you.
- People may not have the technical knowledge to set up an automated website.
- People may not have an idea or product to sell.
- There may not be a demand for their product.
- It’s not easy. It takes a lot of knowledge and hard work to set up a system that generates passive income online. Too many people are seduced by the rewards – working on a beach armed with just a laptop, earning recurring income while you sleep – but are unwilling to put in the time and effort required to succeed.